The Peter Lynch Approach: Investing in "Understandable" Stocks
During his tenure at Fidelity, Mr. Lynch honed his bottom-up approach to stock selection, focusing on fundamental analysis that emphasizes a thorough understanding of the company, its prospects, its competitive environment, and whether the stock can be purchased at a reasonable price.
Share this article
Mr. Lynch outlined his strategy in his books “One Up on Wall Street” and “Beating the Street,” in which he described how his own approach could be used by individual investors.
Mr. Lynch advocated a search for “story” stocks—investing in companies familiar to you, or whose products are relatively easy to understand. The more familiar you are with a company, Mr. Lynch feels, the better you understand the business and its competitive nature, which gives you a better chance of finding stocks with a good “story”—future prospects which, if they unfold according to the plot line, will result in a good return. A screen based upon Mr. Lynch’s stock selection methodology is built into Stock Investor Pro, AAII’s fundamental stock screening and research database. In 2004, the Lynch screen was the top growth/value screen among those tracked by AAII, gaining 59.8% for the full year.
To read more, please become an AAII member or CLICK HERE.